Distributors key to war on counterfeiting

As counterfeiters of electronic components grow bolder and more sophisticated, there is evidence that even equipment ordered or built by the U.S. Defense Department is vulnerable to incursions by fake or substandard parts. The mounting problem jeopardizes the electronics supply chain and increases the likelihood of U.S. government oversight of the tech sector, according to distribution industry sources.

At the Embedded Systems Conference in San Jose, Calif., late last month, executives from Avnet Inc., Rochester Electronics Inc. and the National Electronics Distributors Association (NEDA) told the audience at a panel hosted by EE Times Group that the problem of fake parts in the industry supply chain has grown exponentially in recent years. All product segments have been affected, the speakers said.

Counterfeiting "has become pervasive throughout the market, and the industry must come together to combat the menace," said Chuck Delph, senior vice president of sales at Avnet Electronics Marketing Americas. "The use of franchised distributors can help the industry sharply reduce the injection of counterfeit parts into the supply chain."

Jack Stradley, manager for business development and government relations at Rochester Electronics and a former chairman of the Semiconductor Industry Association's anti-counterfeiting task force, said up to 7 percent of global world trade is "attributable to counterfeit goods," making the crime tremendously profitable for the perpetrators. Meanwhile, detection of counterfeit goods has become increasingly difficult as counterfeiters have deployed advanced technologies to make their illegal knock-offs appear more similar to the legitimate originals, Stradley said.

"International law enforcement officials have linked counterfeit goods to organized crime syndicates, including terrorist organizations using counterfeit goods as a means to raise funds," Stradley said. "Counterfeit goods are known to have caused serious injury and death, including deaths from counterfeit medicine, automotive brake pads and aircraft parts."

That's a concern for nations worldwide. In the United States, the Government Accountability Office warned in a report to Congress that "counterfeit parts have the potential to seriously disrupt the Department of Defense supply chain, delay missions and affect the integrity of weapon systems. Almost anything is at risk of being counterfeited, from fasteners used on aircraft to electronics used on missile guidance systems."

The GAO and NEDA are of one mind on the need for a comprehensive anti-counterfeiting strategy, NEDA executive vice president Robin Gray said in his presentation at the ESC event. Gray warned that any foot-dragging on the part of industry could result in closer government scrutiny of the tech sector, possibly to the industry's detriment.

In its report to Congress, the GAO identified additional steps the government, component suppliers and manufacturers must take to curb counterfeiting in the country and globally. Some of its conclusions follow.

Key findings

1. DOD draws from a large network of global suppliers and manages over 4 million different parts at a cost of over $94 billion; therefore, counterfeit parts can enter its supply chain.

2. Counterfeits are not limited to the DOD supply chain and exist in other government entities, such as the National Aeronautics and Space Administration and the Department of Energy, as well as in many commercial settings as diverse as software, commercial aviation, automotive parts, and consumer electronics, and can threaten the safety of consumers.

3. DOD does not currently have a policy or specific processes for detecting and preventing counterfeit parts. Existing procurement and quality-control practices used to identify deficient parts are limited in their ability to prevent and detect counterfeit parts in DOD's supply chain.

4. DOD is limited in its ability to determine the extent to which counterfeit parts exist in its supply chain because it does not have a department-wide definition of the term "counterfeit" and a consistent means to identify instances of suspected counterfeit parts.

5. Two DOD databases that track deficient parts-those that do not conform to standards-are not designed to track counterfeit parts. A third government-wide database can track suspected counterfeit parts, but reporting is low due to the perceived legal implications of reporting prior to a full investigation.

6. A recent Department of Commerce study identified the existence of counterfeit electronic parts within DOD and industry supply chains. DOD is in the early stages of developing a program to help mitigate the risks of counterfeit parts.

7. Facing risks from counterfeit parts, individual commercial sector companies have developed a number of anti-counterfeiting measures, including increased supplier visibility, detection, reporting, and disposal. Recent collaborative industry initiatives have focused on identifying and sharing methods to reduce the likelihood of counterfeit parts' entering the supply chain.

8. DOD relies on existing procurement and quality control practices to ensure the quality of the parts in its supply chain. However, these practices are not designed specifically to address counterfeit parts. Limitations in the areas of obtaining supplier visibility, investigating part deficiencies, and reporting and disposal may reduce DOD's ability to mitigate risks posed by counterfeit parts.

9. DOD staff responsible for assembling and repairing systems and equipment may not have the expertise to identify suspect counterfeit parts outside of those that demonstrate performance failures, because they are not trained to identify counterfeit parts and have limited awareness of the issue. In addition, the cost and time associated with testing may be prohibitive, especially for lower-cost parts such as a 50-cent fastener.

10. The disposal of counterfeit and scrapped parts is an area of vulnerability as they could reenter the supply chain. According to officials from the Defense Reutilization and Marketing Service-the agency responsible for destroying and disposing of DOD's excess and surplus parts-it is critical that a part and its related demilitarization code be identified as counterfeit when it is sent for disposal to prevent it from reentering DOD's supply chain. However, DOD does not have a consistent method to identify parts as counterfeit when they are sent for disposal. Some parts designated for disposal have made their way back into the supply chain.p